Norman: A small, profitable take on 'big data'

If you've ever felt overwhelmed by the amount of information that bombards you daily, consider this: The world creates 2.5quintillion bytes of data every day. IBM says90 percent of the data that exists today has been created in the past two years.

If you're overwhelmed, consider that utility companies are trying to analyze billions of meter readings in order to forecast the need for new power plants. FICO Falcon Credit Card Fraud Detection System protects 2.1 billion accounts worldwide. Walmart handles more than 1 million customer transactions an hour. Amazon.com receives millions of back-end operations every day in addition to queries from 250,000 third-party sellers.

Companies and governments use this "big data" to make decisions and maximize value. Stuart Frost believes big data also offers big opportunities to entrepreneurs.

"I think big data is going to be as big as the industrial revolution in changing the world," Frost said.

Frost, a native of England and serial entrepreneur,was a pioneer in dealing with big data at DATAllegro in Aliso Viejo. He started the data-warehousing firm in 2003 and sold it to Microsoft in 2008 for $275 million. After a two-year commitment with Microsoft, Frost left to launch Frost Venture Partners in San Juan Capistrano to incubate a stable of big data software companies.

Unlike venture capitalists who primarily invest in startups, Frost Ventures actually starts and runs the companies. With an $8 million seed fund, the company has started seven enterprises and is raising $50million to start perhaps 15 additional firms in the next three years.

His startup model is lean. In contrast to Internet startups in the 1990s that raised tens of millions of dollars, Frost Ventures' startups launch with a few thousand dollars and get more cash as they prove that customers want their products.

Frost explained the strategy: "Most firms are acquired for $50 million to $100 million. Most startups can't take advantage of that because they required too much money to start. With a lean startup, you validate early and often. You focus on a product having a market. We might get an idea from a (big company) partner but at the end of the day we need (our software) to be useful to many companies."

He expects to complete the second fund by the end of the year. "The fund size has to fit what we're trying to do. If we raise too much money, how could we go forward with lean startups?"

To maximize funding, Frost teams with other venture funds. Miramar Venture Partners in Corona del Mar, for example, has invested in three Frost Ventures startups.

"We are big fans of big data and Stuart Frost," said Miramar Managing Director Bob Holmen. "So much data are being produced by companies. How do you harness, how do you use that data to help your company? That provides huge opportunities and huge challenges."

Cirro has been in the LaunchPad program of OCTANe, Orange County's biggest technology network, and Cirro and GenieDB, another Frost Ventures startup, have made presentations at VC in the OC, the county's premier investment event.

"The companies are sharing overhead and resources and Frost Ventures has a lot of ties to big companies that will acquire its companies," said Luis Vasquez at OCTANe. "It's also a great example of Orange County serial entrepreneurs investing back in the community that could do great things for the entrepreneurial ecosystem."

Frost Ventures and its startups are moving rapidly.

Frost started Maana three months ago to build a more effective internal search engine for client-companies' big data. If successful, Maana will accurately search words, photos, videos, X-rays, doctor reports and other forms of data. The idea came from two large companies, which was enough validation to launch. Frost Ventures invested $500,000 to hire a chief executive to further develop the idea and a chief technology officer to start building the product. Frost said Maana will have a prototype in three months.

Miramar's Holmen said, "Not just anyone can do this. Frost Ventures is a unique convergence of talent and people. They're the founders and provide the expertise."

Frost Ventures currently is not accepting business ideas from outsiders.

While Frost likes the big data opportunities, he is well aware of the challenges:

•His team has finite ability to oversee startups. He foresees perhaps 20 portfolio companies, not 100.

•Success depends on finding the right personnel with talents to be chief executives and chief technology officers for each startup.

•Frost Ventures must allocate the right amount of capital to build the startups without wasting resources.

•Frost and his team must be able to come up with enough good ideas on which to build successful companies.

•The startups must be able to gain access to potential customers and companies that might eventually acquire them, one of the toughest challenges facing every young venture.

"So far we have been much more successful than I expected in getting (big corporate) partners for ideas and customers," Frost said. "The value of building a network of people in big companies is we get a lot of good feedback."

Frost Ventures also has been successful in attracting talented executives to grow its startups, which will pay dividends for Orange County, he added.

"There is a big pool of talent here, and they don't have (as many) options as those in the Silicon Valley so we keep them. The ecosystem effect in Orange County is most powerful. The whole will be greater than the sum of its parts."